Practice makes progress: Evidence from divestitures

Humphery‐Jenner, Mark; Powell, Ronan; Zhang, Emma Jincheng

doi:10.1016/j.jbankfin.2019.04.004

Cited by 18 publications

(11 citation statements)

References 88 publications

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“…Both strategic divestitures (Montgomery, Thomas, and Kamath, 1984) and strategically consistent decisions have been linked to superior performance compared to their respective opposites (Robinson and Pearce, 1988). Research has also found that experienced divestors earn higher announcements returns (Humphery-Jenner, Powell, and Zhang, 2019) and argued that divestiture programs facilitate learning and its application in future divestitures (Brauer and Schimmer, 2010). In line with prior literature, we expect program divestitures to be superior compared to non-program divestitures.…”

Section: Divestiture Structuresupporting

confidence: 78%

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

Erl¹,

Kiesel

2021

J Wine Econ

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This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

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Section: Divestiture Structuresupporting

confidence: 78%

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

Erl¹,

Kiesel

2021

J Wine Econ

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“…The relative size of a divestiture, which is measured as the transaction value in relation to the market value of the seller, shows a significant positive impact on ARs in a variety of empirical studies (cf. Hearth and Zaima, 1984; Afshar et al , 1992; Lasfer et al , 1996; Mulherin and Boone, 2000; Wang, 2000; Alexandrou and Sudarsanam, 2001; Kaiser and Stouraitis, 2001; Mittnacht, 2005; Nguyen, 2016; Finlay et al , 2018; Humphery-Jenner et al , 2019). The reason for the positive influence of the relative size on ARs goes hand in hand with the generally expected positive overall performance.…”

Section: Expected Impact Of Corporate Selloffs On Shareholder Wealthmentioning

confidence: 99%

The impact of divestitures on shareholder wealth – The DACH case

Teschner

Paul

2020

EJMBE

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PurposeThe purpose of this research is to study the impact of divestitures on shareholder wealth. This study covers selloffs of publicly traded companies in Germany, Austria and Switzerland (DACH region) during the period 2002–2018. It aims to understand the overall effect of selloffs on shareholder wealth as well as the impact of important influencing factors.Design/methodology/approachThis study is part of capital market studies which investigate shareholder wealth effects (abnormal returns) using event study methodology. To determine the significance of abnormal returns, a standardized cross-sectional test as suggested by Boehmer et al. (1991) was applied. The sample consists of 393 selloffs of publicly traded companies with a deal value of at least EUR 10m.FindingsThe findings confirm the overall positive impact of selloffs on shareholder wealth. The average abnormal return on the announcement day of the sample companies amounts to 1.33%. The type of buyer, the relative size of the transaction as well as the financial situation of the seller in particular seem to influence abnormal returns positively.Originality/valueThis study investigates shareholder wealth creation through selloffs in the DACH region, a largely neglected region in divestiture research, but now very relevant due to increasing pressure of active foreign investors. Sophisticated statistical methods were used to generate robust findings, which are in line with the results of similar studies for the US and the UK.

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“…Kuppuswamy and Villalonga (2016) also provide empirical support for the notion that the benefits of diversification versus focus will vary with economic conditions. Humphrey-Jenner et al (2019) stress that optimal timing of divestitures is important to maximizing shareholder gains surrounding divestitures, implying that EPU may influence the divestiture decision. Mulherin and Boone (2000) and Powell and Yawson (2005) also show that industry shocks lead to an increase in divestitures.…”

Section: Epu and The Likelihood Of Divestituresmentioning

confidence: 99%

Economic policy uncertainty and corporate divestitures

Frye,

Pham,

Whyte

2023

Business Fin & Account

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We examine the impact of economic policy uncertainty (EPU) on the propensity of firms to engage in divestitures. We find that EPU is positively related to the likelihood of divestitures in general and cashflow‐generating divestitures in particular. Consistent with the desire for cash being a driving force behind divestitures, we find that underperforming firms are more likely to engage in cashflow‐increasing divestitures. Firms that do not pay dividends and are relatively more reliant on government funding are also more likely to pursue sell‐offs and carve‐outs when economic uncertainty is elevated. We find no evidence that firms prefer staged divestitures (spin‐offs and carve‐outs) over non‐staged (sell‐offs) when EPU is high. Instead, EPU is positively related to the likelihood of non‐staged divestitures suggesting that firms do not wait until uncertainty is resolved to pursue deals with a high degree of irreversibility. Our findings point to EPU as a motivator for poor‐performing firms to shore up cash during times of EPU.

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Practice makes progress: Evidence from divestitures

Cited by 18 publications

References 88 publications

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

The impact of divestitures on shareholder wealth – The DACH case

Economic policy uncertainty and corporate divestitures

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